• Volume increases as the share prices rises. Normally this is bullish but
rallies prove very short-lived and declines "take-out" previous support levels.

• Broadening formations are only found in topping formations because they
are the product of unrealistic expectations on the part of bullish investors.

• Downside breakouts often lead to small 2-3% declines followed by an
immediate test of the breakout level. If the stock closes above this level (now resistance) for any reason the pattern becomes invalid.

Whereas some technical patterns are characterized by consensus and a general lack of
volatility, the same cannot be said about the broadening top. These patterns always feature indecision and extreme volatility. When one looks at the pattern the resemblance to a megaphone is
striking. The stock makes a series of higher highs and lower lows. Normally as time passes and more information is disseminated, investors come to consensus and volatility slows but just the
opposite is true of broadening tops.

There are distinct
parts of every broadening top
formation. The first of three small tops (top
#1) occurs after a spectacular run to new
high on increasing volume. Generally, this advance will be the result of better than expected earnings, a new product and/or a barrage of Wall Street recommendations. However, as the stock surges
to new highs sellers also step-up selling efforts and it is not long before the stock settles back to a prior support level (a).

After several
sessions of slower trade more positive
news pushes the stock to yet another new high on increased volume (top #2). The
increased volume should be a sign that bullish consensus is building but once again the stock falters, falling to a relative new low (b) just days after making a new high. Although the news flow is still very positive, rumors begin to circulate that some
institutions and insiders are beginning to liquidate positions.

It is at this time that there is a full scale defense of the stock by bullish investors. Wall Street firms
make new recommendations with lofty price targets and once again, the stock begins to move higher. Although volume is strong, it is noticeably less than the prior rallies. The stock moves to
third new high (top
#3) in as many attempts. All of the news is
positive. The company may be raising guidance, setting a stock split or talking about the outlook for new products. The prospects seem bright but even as the stock is making a new high, there is
skepticism among some investors. Days later the stock begins to falter on increased volume but no specific news. Several days later the stock is collapsing and support at the most recent low is
in jeopardy. There is news that a large shareholder has filed to sell stock, bullish investors panic. Weeks later the stock sinks back to the longer-term support level.